What’s happening in the markets and why?
With markets focusing on fundamentals in recent days, price movements in the UK gas and power markets have been relatively rangebound. A small increase has been observed with expectation of lower temperatures in the coming days as well as lower wind generation, increasing overall demand. However, from tomorrow the IUK (Interconnector between the UK and the Continent) will be going on maintenance for 2 weeks, meaning no exports to the Continent and more gas available domestically. LNG arrivals remain robust as well as stable UK domestic production, leaving UK supply comfortable. Elsewhere despite a couple of unplanned outages in Norway, the influence on prices are likely to be limited as we are yet to see curtailed supplies. We have also seen the first withdrawals of gas from storage in Europe with gas storage sites now 99.42% full, down from a high of 99.63% seen earlier this month according to Gas Infrastructure Europe. Given these levels are still at a record high price rises are likely to be capped.
What should energy buyers look out for?
Earlier this week there was some concerns with the US Freeport LNG export plant with feedgas dropping on Monday. Although flows are now returning to normal range the market was spooked given the reliance on LNG shipments from the US. We would also keep a close the weather forecast as any deterioration or unplanned outages both in the UK and Norway could cause the system to be tight and push up prices.
What would you recommend?
Review your positions if you have left volume open in the winter season. Looking forward to next year, depending on your risk appetite you may want to consider taking some cover as prices are closer to the lower end of the recent range.
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